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Posts Categorized: Trader Dan Norcini

Let me preface this short missive by stating that this is pretty much a rehash of a comment I posted in the comments section below one of my recent articles in response to some erroneous information being supplied by a particular reader.

I also wish to state that this is in no ways meant to be singling him out for any sort of ridicule or mockery in any fashion. We have enough of that stuff that goes around these days. He is however, symptomatic of those who continue to greatly err on the subject of backwardation and thus I thought it best to put these comments up as a general post in the hopes of a more widespread dissemination.

I am also glad to see that my pal Jesse over at his website, (which is listed here as one of my favorites ) has also done the gold community a great service by attempting to also define this term and dispel some myths surrounding it. I would urge my readers to check that out when you can.

Here are the comments I posted earlier today repeated in their entirety with some fresh additions.

Thanks as always for your comments. What I am actually saying however is that backwardation is not happening at all on the Comex, not even for a few minutes. I was using absurdity to illustrate the absurd.

For example – here is the latest series of bids for the August, December, February and June gold comex contracts in order as of this snapshot.

Gold jumped in overnight trading during the early Asian session when China released its version of the CPI. June CPI came in at +2.7% on the year where the market was looking for +2.5%. Apparently there was a rush to grab gold when the data hit the wire. Prior to that gold was relatively quiet with a slight bias to the upside.

As you can see on the chart, volume is miniscule however. The big test will be what the metal does when it enters European trading but more importantly, New York trading.

The weakness in the gold shares today (Monday) is generally a bearish sign when the metal and the shares go their own separate way so call me a skeptic until proven otherwise. Asia still loves gold while the West seems to despise it; until the West comes around to falling back in love with the metal, it will be up to Asian buying to do the heavy lifting in the metal.

I have noted an overhead chart resistance zone which basically extends from last week’s high at $1267 – $1269. Bears will be complacent unless this region is taken out with strong volume, otherwise they are going to look to sell into this rally. If the mining shares were strong, that would make them second guess so we will have to see how that sector trades during Tuesday’s session.

I have also noted a region between $1210 and $1185 on the downside which was the price range delineated by very strong volume. Most of that volume was short covering after the $200 plunge where bears rang the cash register on what was one of the most profitable gold trades in a very long time. There was some bottom picking as well but compared to the extent of the short covering, it was insignificant.

The key for the market right now is that it did drop back down into the very top of that region but attracted more buying that selling. That is a positive. We have moved up some $40 since that brief foray into the HIGH VOLUME REGION. The trend is down however so we can expect the rally to be sold but if the bulls can surprise and take price through the anticipated selling that is going to surface, bears will run and this market could lift towards $1285 – $1290.

It does appear that once again we have that gold backwardation talk emerging. Keep in mind that all those proponents of that theory cost their devotees a tremendous amount of money the last time they were proclaiming a bottom based on that occurrence.

I maintain that until the gold futures market shows a true backwardation structure on the board, all this is just talk that is interesting but as far as a trader goes, meaningless. Price action is what confirms theories. If it does, fine. If it does not, that is also fine. Watch for resistance levels and support levels and make your trading decisions on that and that alone.

Remember what I have written here more times than I care to recall at this point – calling market bottoms and tops is a fool’s errand for those with egos that need to be fed. A profitable and successful trader can make a fine living just catching 60- 70% of a trending move.

What will eventually take gold higher will be that shift in sentiment from one of deflation or benign inflation to one of concerns about a resurgence in inflation. That is what we are watching for signs of. When it does, we will know it from the price action!

The mystery, at least in my mind, of the rising Euro is now clear. Outflows of Japanese institutional money is pouring into the European bond markets in search of higher yield.

Consider the following – the yield on a 10 year Japanese government bond has fallen to 0.525%. Yes, that is not a typographical error. If you buy one of those things, you are locking money up in an IOU for TEN YEARS to obtain a half a percentage point of interest. If that is not bad enough, the underlying currency is also freefalling in value. Now, who in the world would want to do that besides the monetary authorities in Japan who are becoming and likely are going to end up staying that way, as the largest, if not sole buyer of Japanese government debt?

Believe it or not, with all the massive problems in Spain and Italy, the yield on the Spanish 10 year bond has now fallen to its LOWEST level in a year. Italian bond yields are down to 4.36%! Dow Jones is reporting that last Friday and this Monday, the yield on the 10 year notes of France, the Netherlands, Austria and Belgium hit RECORD LOWS! This is Japanese money fleeing into European bonds.

Now here is what is even more mind boggling – the Bank of Japan’s own data shows that Japanese institutions hold a gargantuan $6.34 TRILLION of domestic government bonds! This is not a tide of money, it is a tsunami looking for yield!

Bubble in the US stock market? Yes, in my opinion but the bubble is going to get even bigger. Heaven help everyone of us on the planet when this man-made disaster finally reaches its crescendo!

UNLEASH THE KRAKEN…. here it comes….. where is Perseus going to come from?

I came across the following story in my readings today and quite frankly, was thunderstruck after going through it and looking at the data. I did not think this was possible and am still at a loss to explain it so perhaps some of you math whizzes out there can make it simpler for me. Either way, it is simply mind-boggling!

Here is the title – see if it makes you sit up and take notice as it did me!

Fed Has Bought More U.S. Gov’t Debt This Year Than Treasury Has Issued

I would not argue with Trader Dan mainly because he is right. All I would add is "In time,” rather than “tomorrow."

Dear CIGAs,

Those on the left who read my columns will of course take exception with the title I have deliberately chosen, but that is and was a given. So let me start this by saying that I believe their euphoria at having seen their man win, will be short-lived, faced with the extreme problems facing this nation and their utter lack of anything that remotely resembles a plan to deal with them other than the usual class warfare tact of "soaking the rich" further and further enlarging the size and scope of an increasingly intrusive Federal Government.

I have written on this site repeatedly that the problems afflicting the US economy cannot and will not ever be solved by Uncle Ben Bernanke’s alchemy of turning paper into "money" and multiplying it in ever larger doses. What ails the US is structural or deep seated. To tackle that involves a serious plan, a plan which by its very nature will involve making choices that will surely bring about some short-term pain but which would put the nation on a sound footing for long term growth and lasting prosperity. Foremost among this is reducing the spending binge in Washington DC and getting America’s fiscal house in order. That WILL NOT HAPPEN now that the profligate spender Obama has been re-elected. He has no serious plan to reduce the deficit and never has. One can tax the "rich" into oblivion but even confiscating the entirety of their wealth would not so much as to put a dent into the burgeoning national debt.

Business owners, particularly small business owners, the backbone of this nation’s economic health and the primary source of all job creation, had been holding their breath, hoping against hope, that the nation would be delivered from its national nightmare. They either went to bed last evening or arose early this morning to learn, much to their consternation and dismay, that the nightmare will continue for four more long years. A system of nationalized healthcare, with the IRS being the chief enforcers of the penalty for non-compliance now awaits them along with a set of growing, job-killing regulations guaranteed to put further burdens upon them. Not only that, the beginning of the year 2013, will see a massive set of tax hikes hit the nation, further depressing economic activity.

An energy rich nation, blessed by Providence with an abundance of oil, will see its federal lands shut off to any drilling. Any hope for a pipeline delivering Canadian crude to the lower 48 has now withered and died on the vine. China – enjoy that Canadian oil because we are not going to see any of it.

The Dollar, while getting a respite today due to the fact that a near panic has seized upon the investor class, is destined to further weaken, resulting in higher prices for the basics of life such as food and energy. The fiscal cliff is drawing ever nearer with the very real possibility, nay strike that, probability, that the rating agencies will further downgrade the US credit standing.

Dow Jones is reporting this morning that PIMCO’s Commodity Real Return Strategy Fund, with about $20 billion in assets, has raised its gold holdings to 11.5% of it total assets from 10.5% two months ago. The position was apparently taken when gold dipped towards $1500 according to comments from Nic Johnson, its co-portfolio manager.

Their concern is a triple one – loose monetary policy, high levels of sovereign debt and rising commodity prices are going to fuel an inflation outbreak as we move ahead.

Sounds familiar doesn’t it?

Here is the point – the chart in gold showed tremendously strong support in gold on any retreats in price down below the $1600 level a short while back. Gold would dip down into these levels but would immediatey attract strong buying and would rebound back higher. WE remarked that this sort of chart action showed ACCUMULATION by deep-pocketed players, whether those were of Asian origin or large investment funds elsewhere. REgardless, these well capitalized players are positioning themselves for what they see coming down the road.

Note, that this is not MOMENTUM BASED buying. That crowd only enters the markets AFTER it starts moving higher and takes out technical resistance levels. They are now coming into gold and into silver. ACCUMULATION puts a floor in a market; momentum based buying drives it higher into a trend.

We’ll need to keep a close eye on the yield on the Ten Year Note to see how that acts as we move forward. If the inflation play is replacing the deflation play, we have seen the lows in interest rates for a very long time.

The following article appeared today on Reuters which is well worth your read. In a move that illustrates the growing clout of China, approval was granted by the US Government for it to bid DIRECTLY through the auction system of the US Treasury, completely bypassing the PRIMARY DEALER BANKS.

My guess is that the Chinese were sick and tired of being front-run by these unscrupulous banks and issued a stern but quiet demand to either allow them to go this route, OR ELSE!

This further underscores the fact of the growing economic clout of China and just how utterly dependent our nation has become on its funding of our outrageous and downright contemptible indebtedness.

NEW YORK (Reuters) – China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.